As an analyst with over two decades of experience in the financial markets, I find it fascinating to observe the ebb and flow of market sentiment, particularly in the dynamic world of cryptocurrencies. The recent Fed announcement, while causing a momentary dip in the crypto market, is just another hiccup in this multi-year bull run.
On a late Wednesday (U.S. time), Matt Hougan, the head of investments at Bitwise Asset Management, shared his thoughts on the Federal Reserve’s announcement and its effects on the cryptocurrency market via social media platform X.
On Wednesday, the Federal Reserve revealed the outcome of their Federal Open Market Committee (FOMC) meeting held on December 17-18. According to the FOMC Statement, while some progress has been made in reducing inflation, it remains above their preferred level of “2% over the long term”, a goal they aim to reach by 2027. In order to meet their dual objectives of controlling inflation and achieving maximum employment, the FOMC decided to reduce the target range for the federal funds rate by 0.25%, adjusting it to 4.25% – 4.5%.
Of greater note, the Fed’s graph published yesterday indicates that its governors now forecast just two interest rate reductions in 2025, contrasting with the earlier prediction of four cuts as shown in the September projections.
Initially, the expected quarter-point reduction in interest rates by the Fed was generally forecasted to occur by both the U.S. stock market and the crypto markets. However, the Fed’s indications of potentially fewer rate cuts in 2025 caused investor uncertainty, leading to a general drop in U.S. stock market indices as well as cryptocurrencies.
To begin with, Hougan emphasized that increased rates could negatively affect riskier assets like cryptocurrencies and stocks. Specifically, he noted that Bitcoin‘s value dropped from approximately $106,000 in the morning to below $99,000 as the day progressed.
He then went on to say that such a sharp pullback in the crypto market led to approximately $600 million in levered crypto positions getting liquidated, “exacerbating the pullback.”
As a researcher, I find myself not overly alarmed by the fluctuations observed in the crypto market yesterday. Instead, I view these events as temporary “hiccups” that do not necessarily indicate a full-fledged “reversal.
His reasons for still being very bullish on crypto?
The Chief Investment Officer (CIO) of Bitwise is positive regarding the supportive stance towards cryptocurrency from the upcoming U.S. administration, the growing acceptance of crypto among institutions, the influx of funds into Bitcoin (BTC) and Ethereum (ETH) spot Exchange-Traded Funds (ETFs), increased BTC purchases by governments and corporations, as well as the advancements in blockchain technology that are currently being achieved.
He concluded by saying:
“Crypto’s in a multi-year bull market. 50bps of projected rate cuts won’t change that.“
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2024-12-19 15:34